You read the title correctly. We actually had two opportunities to merge or sell our company and both times said no. I wanted to get this story out because I feel a lot of business owners and entrepreneurs might be thinking about selling, have thought about it or question it at times.
Due to sensitivities of this topic, I will not be discussing many details like how much was offered, what year it was, who offered or anything in between. I will share our decision making process, what we learned and what to look for.
The Perfect Storm.
As an entrepreneur, have you ever felt like you're taking one step forward and two steps back? You might also feel like things happen for a reason, right? Well that is exactly what happened to us one summer.
My partner and I were coming off of a weird summer. Clients seemed unhappy. The company culture seemed drained of energy. It was one of those moments where you felt everything you were doing just started to project downward and regress. It's one of those moments you question yourself as an entrepreneur with questions like; "Is this worth it?"
At that very moment in time we received a unique opportunity. A company was looking to acquire an agency just like ours. We fit all the criteria and investigated this just for fun with no intent to actually sell. One conversation led to another and before we knew it we had an offer on the table.
Things were still very stressful for us and we really thought about selling. Ultimately, we said no. It was a hard decision but we're very happy we made that decision. However after making this decision, we got laser focused and the following year we made our largest investment to our company and decided to really scale our business.
Behind The Decision.
Build a business and sell it. The entrepreneurial dream. However you need to make sure the deal is right for you at that very point of your life.
Is 80% earn out over 3 years + salary + commissions good enough?
The deal was setup for around an 80% earn out over 3 years. This means they only pay you 20% cash and you must hit certain metrics to collect that remaining percent earn out that year. So if we did not hit our numbers over 3 years, essentially they bought our company for 20 cents on the dollar. That is a huge win for them, but a major loss for us.
When my partner and I ran the numbers, we figured if we hit those metrics internally without selling we would be better off and still hold full control of our business.
*Also: Our industry would likely be the first to see downward sales trends in a bad economy because few people invest in software development during hard times. And we were uncertain at that point where the economy might go.
Could we really work for someone?
Look, some people love working for someone else and don't want all the responsibility and crazy work hours as a business owner, however, my partner and I are not wired that way. We love the challenges of running and growing a business. We asked ourselves was this the easy way out? Are we just stressed now? Can we rally and really grow this?
I think how we answered some of those questions reflects our decision. Life is short. Do what makes you happy.
Are we missing our potential?
Regret is the absolute worst thing in the world to me. My partner and myself questioned if we are not living up to our full potential. We're both younger (I was in my 20's & him in 30's) and we just started in 2011. Our business is under a decade old and it's our first start up. Also, we were seeing a growth rate year over year around 150%.
We decided to give it more time, build our skills and keep growing as entrepreneurs and not be capped by rules set from someone else.
As I reflect on this moment in my life I can sit here and say I'm absolutely happy I made the decision to not sell. We built our business bigger than ever and have many more opportunities now. Here are a few things I noticed during this process I wanted to share with you all.
1) It's a huge time suck.
If you have ever been through this process then you know it's a huge time suck. You spend time looking at contracts, thinking about the deal, meeting with attorneys and CPA's. It really takes a tole on you and you lose focus on daily operations. Looking back, we should've said no immediately and rolled up our sleeves. I guess it's fun to go through that process and feel grateful you built something good enough someone is willing to purchase.
My Advice: Know beforehand if you even are considering selling or not. Don't let this consume you and suck your time away.
2) Wow, did we ever fix margins.
During our massive growth phase we were not tracking margins how we do now. We let a lot of things slip, focused on gross revenue and let so many little things add up, decreasing our margins. Once we got very detailed with reports for the M&A, we noticed a couple holes in our ship and immediately fixed them.
My Advice: Keep an eye on margins. Set goals and execute on them.
3) Trust your gut.
Lastly, I will leave you all with this and that is to trust your gut. It was appealing to us, but at the end of the day my gut told me it was not the right opportunity. Sometimes it can be wrong, but in this case it was spot on.
My Advice: Money isn't everything. Life is short and you should enjoy the building process as a business owner. It's all about the journey, not the destination.
I hope you all enjoyed this and if you have questions, email me at firstname.lastname@example.org